Europe's Biggest Financial Swindle Since World War II

Eva Joly, French-Norwegian magistrate judge and economic crime-fighter, on the attitude of the Icelandic government towards the investigation into the country's economic collapse.

We tend to think of revolutions as single linear events, resolved in a straightforward manner soon after the status quo is called into question by forces that hold some clear moral or technological advantage.

Unfortunately, revolutions are long, messy affairs with no clear start and no clear ending. Four years passed between the fall of the Bastille and the Reign of Terror; another six years would pass before Napoleon crowned himself emperor. Four years passed between the 1929 stock market crash and the low point of the Great Depression; the world did not recover until after the Second World War.

I have always believed, ever since the Icelandic economy came crashing down with the country's bank cabal, that our politicians have failed to grasp the enormity of these catastrophic events. I've also seriously doubted if there really is a sincere political will to investigate them, to really get to the bottom of what is now being described as Europe's biggest financial swindle since World War II.

It was to be expected that the administration of the conservative Independence Party, whose reign laid the ground for the country's swamp of sleaze and corruption, would drag their feet initiating any sort of investigation, but no matter where on the political spectrum they are, Icelandic politicians seem to view this investigation as some kind of a side issue. It took months to establish the office of the Special Prosecutor which has been starved of funds from the beginning; the banks and their boards are still littered with incompetents who oversaw the old swindle mills. How clueless Icelandic politicians are was especially evident during this spring's election campaign. I'll never forget watching the largest televised debate before the election, where nary a single word was uttered about the collapse or the investigation, but candidates bickered about what quick-fix would save the country - more aluminum plants, EU membership. There was something surreal about these exchanges, bringing to mind scenes of a mass destruction - the mad elephant has trashed the living room, and everyone is squabbling about how to pick up the pieces, with the elephant still strolling around the room.

Icelanders are anxious to grasp any encouraging economic news as a sign that good times are just around the corner, and that the massive protests in January 2009 that brought down the Independence Party-led government were overly-dramatic, unnecessary. Instead of focusing on any possible misdeeds in the past, many say, let's concentrate on the future and build our country back to its rightful place as the world's most prosperous country.

Eva Joly, the famous Franco-Norwegian economic crimefighter hired to help the Icelandic government recuperate the funds stolen by insiders when Iceland's economy melted late last year, has just given an ultimatum to the newly-elected center-left government: remove the disqualified State Prosecutor (whose son is involved with one of the banks under investigation) and give me the resources to do my job properly, or I walk. Joly, who has been in her advisory post for over two months and is no doubt sick and tired of dealing with Icelandic political hillbillies, said on Icelandic state television that the fact that this had not been done yet gave "very wrong signals, making me ask myself, is there a real will to deal with the problems here?"

Fortunately, Ms. Joly's threat was taken seriously by the government; they know that the Icelandic public views Madame Joly as a sort of a guardian angel, someone who is not afraid to speak the truth, but more importantly someone they can trust, a characteristic in short supply among Icelandic politicians.

One of the most telling of Ms. Joly's remarks was her statement that her investigation was the most important of its type in recent European history, and would take five years to do properly. In this Age of Twitter, she might as well have asked for a century. Everyone wants to believe that good times will roll long before then. It's one thing to take a domestic vacation this summer, but to have no prospects for foreign vacations for the foreseeable future is beyond their comprehension. Life was so good when Iceland was sitting on top of the UN's prosperity lists that they just can't conceive of a less extravagant lifestyle.

Former owner of Landsbanki, Björgólfur Thor Björgólfsson, and his wife, Kristín Ólafsdóttir, enjoying the good life on a yacht in Cannes last month (furious Icelanders have recently been posting this photograph on Icelandic blogs as evidence both that crime pays and that money doesn't necessarily buy taste). Every woman, man and child in Iceland stands to be indebted to the tune of $16,000 to repay British customers who deposited their savings into "Icesave" accounts in the bank's London subsidiary. The London bank granted a $327 million loan to one of Björgólfur's companies, whose outstanding debts to the now state-owned Landsbanki amount to $310 million.

Iceland's self-styled tycoons have parked their money in foreign bank accounts, just waiting for the market to bottom-out. Then they'll swoop in, buy up all the over-mortgaged properties from the nouveaux pauvres, and strut like princes again. This pesky investigation outrages them. How dare she try to take away "our" money! "She's obviously biased against us," they say, "and is only using the investigation to further her cult of personality and leftist political goals."

Every day there's some news story demonstrating that they just don't have a clue. The mayor of one of Reykjavik's suburbs just can't understand why he should resign for giving lucrative contracts over to his daughter's firm. The former CEO of one of the failed banks sees nothing wrong in granting himself a very substantial loan with suspicious terms, to say the least, in order to lower his taxes (the loan is now being investigated) . The State Prosecutor can't see why he should resign just because his son was the CEO of one of the bank's main shareholder. The head of one of the "new" government-owned banks announces that he can't see any legal reason to try to reverse the "old" bank's decision to forgive loans its officers and directors took out to purchase bank shares in a fraudulent attempt to manipulate its stock price. The head of the conservative Independence Party raised the price of gasoline at the stations he owned because of new government taxes--long before the taxes were scheduled to take effect.

Meanwhile, home break-ins have increased 70%, the unemployment compensation fund is expected to run out of funds this fall, nearly one-third of Icelandic households is expected to become insolvent this year. Young workers are leaving for greener pastures in Denmark, Norway, and Canada. Nearly 80% of Icelanders believe the economic system is fundamentally corrupt.

Half of Icelanders believe that this corruption has infected the media. The major media outlets are owned by the same individuals widely suspected of manipulating the economy for their personal benefit. With few exceptions, the reporters repeat the right-wing narrative that the economy is already on the rebound, and that the government should loosen its controls.

Fortunately, the Internet has revolutionized Iceland more profoundly than perhaps any other nation. A new Facebook page protesting the government's agreement to pay British and Dutch investors for losses suffered by one of the banks has grown in little over two weeks to include over 31,000 members--over 10% of the entire population (imagine 30 million protesters in America). Dozens of dedicated bloggers (my favorite, Lára Hanna, unfortunately not in English) put together an alternative narrative from the disparate pieces of information they learn from friends and family.

In his classic work, The Structure of Scientific Revolutions, Thomas Kuhn postulates that, like political and social revolutions, scientific revolutions are not clean affairs. Rather, they come about when disparate facts that can't be explained by the existing paradigm are gathered by a minority of (typically) young scientists, who form a new framework that encompasses the old and new data. The older scientists, whose careers are invested in the old paradigm, resist these challenges by creating exceptions to their rules, then exceptions to the exceptions, until the old theories are supplanted when the young scientists obtain positions of authority within academia and research organizations.

Iceland's existing paradigm is not dissimilar to Friedrich Nietzsche's Last Man. Icelanders (or at least the financial and political elite that led us over the cliff) believed they were better at everything than everyone else, and deserved all the rewards commensurate with that status. It was simply unacceptable and inconceivable that they could ever fail. And for several years, we all believed them.

Now, we've all seen the Emperor's new clothing, and most of us have enough modesty left to be shamed by it. The new paradigm is out there, building itself up in the new media piece by piece. The investigation of Eva Joly and Special Prosecutor Ólafur Þór Hauksson is essential to its construction.